Tuesday, November 13, 2007

Wow, what a dream sequence. The leaders of North Korea and Iran get into cat fight, slapping and scratching and pulling hair. One hits the other with his purse. A retaliating kick to the shin answers the Gucci smack. Hiss, snarl!

The combatants morph into Andrew Cuomo and Jim Lockhart, more hissing and snarling, even a growl.

I’m tempted to break it up just like Ward Bond contemplated--as Father Lonergan, the wise village priest in “The Quiet Man” movie--when John Wayne and Victor McLaughlin went knuckle sandwich on each other. But, “Father Lonergan” wisely decided not to intervene in such a lovely fight, which was good enough for me.

New York state Attorney General Andy Cuomo’s rumble with OFHEO Director Jim Lockhart never will rival the Wayne/McLaughlin tiff, but the two officials are off to a fun start.

In my dream, I wonder if both guys can lose. “If there’s a God, boy.” I hear Ward Bond rumble in my subconscious!

They Did What?

If you still are in a stupor over the shrinkage of your 401(k), you may have missed that Andy is investigating mortgage lender Washington Mutual’s loan appraisal systems and he has some “concerns.” He thinks they may be inflated or fraudulent and believes there might be some blame to share with Freddie Mac and Fannie Mae, both of which buy loans from the west coast financial institution. Cuomo has subpoenaed the companies for information which he believes is germane to his probe.

Fannie and Freddie have agreed to comply and also name an independent source to double check their systems to see if they were violated.

Is it possible that WAMU--with criminal intent or in collusion with the GSEs--slipped improperly appraised loans pastFannie’s and Freddie’s automated underwriting and detection technology, even though WAMU’s GSE contracts make it financially liable for underwriting errors and put the GSEs on the hook for credit losses from securitized defaults?

Sure. But, I doubt it.

Why Would They do That?

First off, why—after recovering from years of lost business, political and media abuse and suspicions, spending well over a billon dollars on every conceivable back office upgrade, firing anyone who had anything to do with the “bad old times,” proudly displaying their corporate transparency, and touting their return to being “SEC compliant”--would the companies knowingly do anything so outrageously audacious?What reward could possibly justify that risk?

I think the speed with which the GSEs complied with Cuomo’s requests—noting their doubts with his allegations—also argue that they are not afraid of what his inquiry will show.

Lockhart, to his credit, fired back at Cuomo—almost like a good GSE regulator would—and questioned the state AG's understanding of the mortgage securities market, as well as Cuomo’s failure to communicate, coordinate or cooperate with OFHEO in his inquiry. (Lockhart’s response momentarily stymied Cuomo’s staffers when they couldn’t discern which of AC’s hundreds of press releases and dozens of subpoenas issued last week angered OFHEO.)

I assume that Lockie’s response was driven by the GSE operational protections his agency watched installed; AC’s modus operandi; Andy’s political persuasion; the fact that Andy’s is a media hog; and--importantly--because there is some OFHEO-peril in Andy’s fishing trip.

Everyone knows that since Lockie went medieval on them and shackled Fannie’s and Freddie’s business operations, with bureaucracy, additional capital and severe limits on their portfolio purchases, OFHEO has been running the GSEs!

Did OFHEO revert to form, issuing bellicose press releases and threats (Hey, sounds like Andy), while being asleep overseeing the GSE operational switches? When you take de facto control over a company, as Lockie has, YOU make the big calls or have they all run by you. The buck stops at your desk!

Someone might ask if Andrew is onto something, how could this happen under OFHEO’s stifling watch?

But, my chips are on OFHEO and the companies.

Andrew Cuomo is a “#%@#*&#$@!”

Serious political observers know the two words used most frequently to describe Andy Cuomo—at least the words which can be repeated to your mother—are “grandstander” and “irresponsible.” In “Cuomoland,” getting it out always has been more important than getting it right. Apologies always can come later, plus they don’t generate as much news coverage.

Knowledgeable mortgage industry sources still are trying to figure out Andy’s angle. How can Fannie and Freddie make money by cheating themselves and securitizing--or putting in their portfolios--loans with inflated appraisals and, therefore, not worth their face value, especially in the current environment?

Cuomo long has been a politician “on the make,” always looking for any press attention, actively seekingfootholds and stepping stones to the next higher office. Given his outsized ego, it’s a wonder he leaves any oxygen in the state for other public officials or the general public.

I often wished that Andrew’s parents had just named their son “Governor, Senator,” or President” and saved the world AC’s constant campaigning for those jobs?

Andy is a GSE opponent—despite what he may claim—starting when, as Bill Clinton’s Secretary of HUD, he developed a severe case of “mortgage operations envy.” It bugged him that the two companies--for which he was part overseer--could do so many positive things so easily, while he had to go through bureaucratic hoops and Congress.He viewed himself as the country’s number one low income housing advocate and he was galled by all of the positive press and attention the GSE executives continually received. His personal dispute with one senior GSE exec didn’t improve his temperament, either.

Andy got his latest “Warhol 15 minutes” last week, at the expense of the GSEs and some Washington public officials. He assisted in tanking the market a bit and probably helped shake up the country's faith in the mortgage finance system, all the while trying to maintain his “choir boy” look. I suspect if his investigation produces anything, it won’t be worth the collateral damage he’s already generated and still might cause.

Someone needs to remind him that the GSE people and cultures he disliked are long gone and his “bull in a china shop” antics may not further his political career.

Like a shark, Andy is drawn to media opportunity, when he smells blood in the water. He has WAMU and now he thinks that going after Fannie and Freddie might make him look more like an avenging angel and also keep the world reading his press utterances. If he’s wrong, he’ll iron it later, having some flunky issue a statement with a prominent “but clause.”

Go Get Him, Lockie!

He also might be crossing a line here, if Chuck Schumer (D-NY), the Chairman of the Senate Housing Subcommittee, who already has been working responsibly and intently on most of these issues, decides that he doesn’t need Andy Cuomo’s “help” to figure out what is appropriate federal policy in the mortgage and GSE areas.

Maybe Lockie should get his tail up to the Hill and work with Senator Schumer on their common interests, one of which might be keeping Andy Cuomo as far away as possible from their business?

Lockie, you are playing with fire, but “Fire” is trying to burn your children and your home. If you are in for a dime, be in for a dollar and fight hard! You don’t want to leave town with your scalp hanging from Andrew’s belt.

KnowhatImean?

(Happy birthday today to Bill Maloni, a great guy who is smart, friendly, responsible, humorous, compassionate, and a good husband, father, grandpa, and friend. Sounds like a great epitaph!)

Tuesday, November 6, 2007

Those little financial chickens continue to come home to roost and the nation is well served by it, as long as the process remains orderly and devoid of panic. It’s what’s supposed to happen when market participants make mistakes and then account for them, literally and figuratively.

The mortgage market is taking its lumps and it may take more, but that is a better process than hiding the errors and mistakes with “fireworks and bobble head doll giveaways” (a favorite ploy of losing major league baseball franchises).

Citi, Merrill, Bear Stearns, UBS and others will live on, either under their own names or taken over by a stronger entity and the public won’t suffer more than they have to date. Some Wall Street and banking jobs will be lost, but as long as that plays out in an orderly manner, relative to the broader economy it should be a minor hiccup.

The mortgage market will right itself in a year or so, with some property value losses, which won’t injure families who bought a house to live in, not as an investment toy.

Returning to a previous theme, though, still more needs to be done for the families trying to make survive and keep their homes while stuck in those upwardly adjusting subprime loans.

Finding those borrowers and insuring they are aware of their available options—and helping them exercise those opportunities--is the best thing that mortgage market professionals can do for the people trapped by those loans.

National Politics

Hillary versus Obama, Rudi versus Romney?

I speculated in an earlier blog that Senator Clinton would come on to wrest the Democratic nomination from Obama. I continue to believe that is what will happen. Right now, it looks like Giuliani may get the GOP nod over Mitt Romney.

But each could become the next President of the United States.

As you think about the next leader of the free world going nose to nose with Mahmoud Ahmadinejad,Vladimir Putin, or Hugo Chavez, which of those four do you think stands his/her ground best and can prevail in personal interactions with the other world leaders?

(Every time I write Ahmadinejad’s name, I think of SNL’s faux 2000 presidential debates with Will Ferrell’s “George W. Bush” character preening and proudly displaying how well he can enunciate the names of foreign leaders and begging to name more!!)

A national columnist this weekend went off on Hillary’s candidacy noting if she were elected, the nation also would get her husband, which the writer felt was a horrible precedent.

I think he is wrong. Who among us doesn’t like a bargain? The nation’s food stores seemed to have pioneered the BOGO or “buy one, get one” marketing, to great acclaim from the buying public. Part of me is enamored with the idea that Bill Clinton would be there as “first mister” to help President Hillary Clinton, if she indeed were elected.

I also think Hillary is smart enough to do things “her way,” not Bill’s if she disagrees with him. And, if Mr. Clinton--while Hillary was President--ever got out of line, in a way that most people assume he is prone to do, then I think she would divorce him (excuse me, “in a New York minute) and earn wide spread kudos for that action!

Hopefully, that step never becomes necessary and Bill Clinton just learns comfortably to stand in Hillary’s presidential shadow, if she becomes the nation’s choice. I think he could be an incredible resource.

Thain, Fink and Sites all are getting media attention as top candidates for current and pending vacancies at various Wall Street and commercial banking firms. The three also served stints on Fannie Mae’s National Advisory Council.

While I am sure that currently he has fourteen other business irons in the fire—as he usually does--those New York boards seeking a strong CEO shouldn’t look too far past Jim Johnson, former Fannie Chairman and CEO.

SEC Compliant, Goodbye!

Apropos of absolutely nothing, there continues to be rumors that once Fannie and Freddie make current their financial books (in the next few days/weeks), one or both of their top folks could be headed elsewhere.

Question, why would any sane businessman walk away from the joyful GSE executive experience of hanging with Hank, loafing with Lockie, bonding with Ben, howling with Howard and the Homebuilders, fooling Pfontenheimer, wooing Wall Street, rapping with the Realtors, chewing the fat with the credit unions, bowing to your board, fussing with FASB, empathizing with employees, gagging on GAP, jousting with the Journal, leaned on by lenders, moaning over “mission,” seething over ceilings, raging at the rating agencies, offending OFHEO, angsting with Angelo, yawning with Yingling, dueling with Dianne, clicking with the community bankers, hissing at HUD, being bullied by Barney, gabbing over goals, and mooned by the Mortgage Bankers?

Answer? Buller, Buller, class, class…?

Question of the Week?

As noted, Fannie is ready to file its quarterly reports with the SEC this week, thus becoming “SEC compliant.” Freddie, I am sure, will shortly follow suit.

What excuse will OFHEO’s Jim Lockhart, “I am the Lockinator,” use to deny these two companies relief from his twin political decisions to force them to hold 30% excess capital, beyond their statutory risk based formula, and to limit their portfolio purchases to some low number he cooked up with the other zealots.

Don’t hold your breath waiting!

Some people say that Lockie still is cheesed off at Dan Mudd and Dick Syron, because both wore white underwear after Labor Day, which is a fashion no-no in “Lockieland.” (No discussion of briefs or boxers.)

Reportedly, Two Gun still is raging that one of the GSE board members failed to bow “really low” to him, at a recent meeting.